Investors' Guide to the S&P500's Building Blocks
My Approach to Investing and Trading
The community's positive response regarding adding new securities to our Support/Resistance levels during this season has been a pleasure to witness. The interest has been significant, and the quality of the suggested stocks is excellent.
Many of these suggested stocks have already been covered in the fundamental analysis library. Remember, this library analyzes companies based on their financial health, business model, and competitive advantages. Four of these deep-dive reports have been made available to everyone (including free subscribers), so you can be familiar with my approach; let me recall some publications, use the links for access:
Stocks like CRM, UBER, MRVL, RDDT will be fundamentally analyzed in upcoming publications based on your interest, upgrade to paid subscription and get access to all the fundamental library, stocks like LMT, NFLX, DIS, JPM, BAC, WMT, PLTR, all the Magnificent 7, and more than 40 securities are in the library:
My Investment and Trading Approach
As I mentioned last Friday, my investment and trading model is a disciplined, top-down approach. It ensures we only act when a fundamental, technical, and predictive edge align. This is the same process that will be applied to our upcoming analyses of CRM, UBER, MRVL, and RDDT.
The "WHAT": Fundamental Strength
Before any chart is considered, I ensure a company is fundamentally sound. It requires a history of healthy revenue growth, consistent operating income, a durable competitive advantage, and financial ratios that justify a long-term bullish thesis. Those analyses are in the Fundamental Library mentioned. Click here.
The "WHEN": Technical Triggers
With a fundamentally strong company identified, I analyze its technical posture. We look for reliable patterns, whether it's a breakout to all-time highs or a bounce opportunity from an oversold condition. This provides the trigger for our action, grounded in the company's underlying strength. The technical analysis requires a more frequent follow up than fundamentals, and the Weekly Compass is updated every week including 20+ securities constantly analyzed, providing a broad and also consistent universe of securities including U.S. Indices, the top 10 stocks in the SP500, Metals, Bitcoin, VIX, Bonds, and momentum stocks. Click here for the latest one.
The "WHERE": Predictive Levels
Once the fundamental and technical pictures are clear, we apply our backtested model of support and resistance levels. This final layer validates the expected price action, framing the potential moves for the week and month ahead. The confluence of these levels is a powerful tool we use to confirm breakouts and anticipate reversals across all asset classes, from individual stocks to indices, Bitcoin, and precious metals. The Support and Resistance levels are published every Friday for the week ahead, including a broader set of securities including leveraged ETFs, and more major stocks. For the latest publication, click here.
The “HOW”: Investment Instrument
Once a trading strategy is set, an investor must choose the right instrument to execute it. There are several common choices:
The Stock Itself: This is the most traditional method, involving direct ownership.
Options: These add leverage but also significant risk, as their value is affected by both price and time decay.
Leveraged & Inverse ETFs: These offer amplified (e.g., 2x or 3x) or inverse exposure to a stock or index without the same time decay as options. Examples include NVDL (2x for NVDA), 3NVDL (3x for NVDA), SPY (for SPX) SH (Inverse for SPY), TQQQ (3x for the Nasdaq 100), and SQQQ (-3x inverse for the Nasdaq 100).
Using any form of leverage demands rigorous risk management and a full awareness of the implied risks. For the educational content site, click here.
If you’re interested in a publication specialized in leveraged instruments please like and/or comment “Interested”.
What is the difference between investing and trading?
The simplest answer is the timeframe. Investors typically focus on long-term wealth creation and pay attention to monthly charts, while traders focus on short-term profits and analyze daily or even intraday charts.
The weekly chart serves as a reasonable middle ground. It provides a framework for the week ahead, helping long-term investors make more timely decisions—such as trimming a position before a major drawdown or adding to a position without missing the start of a rally; and traders know what is the bullish or bearish “halo” for the price action in the very short term.
Macro, The Fundamentals for Indices
Today’s edition focuses on the fundamental side for the indices, in the end we talked about stocks, so what constitutes "fundamental analysis" for stock market indices like the S&P 500 (SPX), Dow Jones (DJI), Nasdaq 100 (NDX), or the Russell 2000 (which I track with IWM)?
The answer lies not in a single company, but in the macroeconomic landscape. The true fundamentals for the overall market are indicators like interest rates, housing starts, unemployment data, non-farm payrolls and others studied, which together paint a picture of the economy's health, along with the sector-wide performance.
Today’s edition provides a breakdown of key market sectors and explains why each one is relevant to the overall stock market. We will cover Financials, Utilities, Consumer Discretionary, Tech, Health, Consumer Staples, and Energy, along with a special analysis of the Real Estate sector, which was hit particularly hard today.
Each S&P 500 sector offers unique signals about economic conditions. This guide will give you the criteria needed to analyze current trends and better understand investor sentiment. The technical charts for several sectors are triggering signals that are consistent with the latest weekly compass. Let’s begin.
Financials (XLF)
Comprising banks, insurers, and financial firms, this sector's performance is a strong barometer for the overall economy. It is highly sensitive to interest rates, as rising rates tend to boost bank profits while falling rates can signal a slowdown. Key things to watch are loan growth, which indicates economic expansion, and any changes in government regulation.
Technical Outlook: